Australian auto industry faces extinction over GM and Ford pullout

The Australian auto industry is facing extinction following the recent decision of General Motors Co. to stop its vehicle production in the country. The decision came just seven months after Ford Motor Co. made a similar announcement. GM recently said that its Holden unit will stop production in 2017. This prompted the other major carmaker in Australia, Toyota Motor Corp., to say that GM’s decision will place “unprecedented pressure” on parts makers.

The carmaker also questioned the merits of remaining in a country where an appreciating local currency and dropping import tariffs have resulted to lower sales of Australian-made cars by almost half since 2007. Should Ford, GM and Toyota leave the country, it would have unprecedented impact on the economy, as they have around 150 suppliers that employ around 42,000 people.

Holden’s exit from Australia also places more pressure on Prime Minister Tony Abbott, who is facing increasing unemployment and deteriorating consumer sentiment. Martin Whetton, an interest-rate strategist at Nomura Holdings Inc. remarked that GM’s announcement will be “a major blow to confidence in the run-up to Christmas, as job losses will exacerbate an already heightened sense of insecurity.”

Dave Smith, head of the vehicles division at the Australian Manufacturing Workers’ Union, remarked that Australia’s century-old auto industry, won’t survive Holden’s departure, noting that “a lot of older workers are going to be consigned to the unemployment scrap heap.”

Smith told Bloomberg by phone that “this is what happens when you open up the borders” to imports. The influx of imports, mostly from Asia, greatly affected the sales of locally made vehicles, which accounted for only 10 percent of total auto sales in Australia this year, according to data from Ford and the Federal Chamber of Automotive Industries.